The OEMK-MiddleSex relationship extends beyond the trading agreement. MiddleSex monitors the day to day running of the mill, the company's management spends considerable time at the mill while two OEMK representatives monitor steel trading in London on permanent basis. In addition, OEMK has a 20 % interest in MiddleSex's financial services arm, Interfin. Overall, according to what I have observed, I believe that this relationship is very strong.
Due to increasing environmental concerns and the subsequent growth of the electric arc furnace (EAF) steel-making facilities, direct iron reduction technology is becoming more attractive. Originally, all DRI exports from OEMK were handled by DRI (IOM) Ltd. In August 1996 MiddleSex bought 100% of DRI Ltd. For a maximum consideration of 2.8m and inherited a ten year exclusive world wide distribution.
DRI EXPORTS BY REGION ('000 metric tonnes)
Since it gained the control over DRI exports, MiddleSex has managed to significantly expand the company's customer base. Currently, OEMK's DRI pellets feed steel mills in USA, Spain, Germany, Italy and Mexico.
According to my observation I believe that a vertical integration of MiddleSex's steel activities is possible and would be highly beneficial for both partners. Assuming that MiddleSex takes an equity interest in Lebedinsky GOK, the raw material supplier (such as iron ore), and increases its equity interest in OEMK, MiddleSex would have an economic exposure to entire steel operation, from the raw material (Lebedisky), through the steel mill(OEMK) to trading (MiddleSex/WolffSteel)
Aluminium was one of the original businesses which Masoud Alikhani injected into MiddleSex when he joined in 1993. The aluminium business was built upon Mr. Alikhani's trading relationship with Tadaz, the third largest aluminum smelter in the world, located in Tajikistan. Historically, the relationship with Tadaz was that MiddleSex would supply the aluminium; it would pre-finance the processing and in return it would receive the aluminium which it would then sell in the international markets. The relationship worked profitably. However, throughout 1996, the political situation in Tajikistan deteriorated, trading cycles became longer and no deliveries were made in the last six months of 1996, leaving MiddleSex owned some US7.9m(Ј 4.6m). MiddleSex believes it will recover this debt: it has already received US$2.4m(Ј 1.5m) in late June 1997. Negotiations are well advanced to collect the balance.
During 1996 MiddleSex diversified its non-ferrous business into nickel. In October 1996 it entered into a short-term pilot contract with Napo Invest and Trade Corp., a company incorporated in the British Virgin Islands and run by Mr. Yuri Murkin, a business associate of Mr. Alikhani, and two Russian companies: Koks, which owns the Kemerovo coke plants and Kombinat Yuzhuralnikel, one of the biggest Russian nickel producers.
The government recently sold its 38% in troubled Norilsk Nickel, the biggest but also heavily debt-ridden Russian nickel producer. Following the Norilsk example, Yuzhuralnikel could be the next to be auctioned. Interfin, MiddleSex's 40% owned investment, has already secured a 14.7% interest in the Yuzhuralnikel nickel plant, which gives MiddleSex a 5.9% indirect interest.
Overall I believe that MiddleSex is in strong position if it decodes to increase its interest in
Yuzhuralnikel and therefore its Yuzhuralnikel exposure to nickel. However, I have assumed that MiddleSex will only extend the trading with Yuzhuralnikel.
The backbone of MiddleSex's financial services operations is the 40% owned Interfin (Interbank Investment and Finance Company). The remaining 60% is held by GAZPROM (20%), OEMK(20%) and Mapo Bank(20%). MiddleSex's financial services include:
trading in Russian capital markets;
financial advise to western companies or potential business in Russia, and
advice to Russian companies entering western capital markets.
Established in late 1994, Interfin commenced by trading in Russian treasury. Initial returns were good and Interfin quickly made substantial profits, which enabled the company to start bying stakes in various Russian companies. As a result, Interfin has built an impressive asset base of which the company estimated to be in excess of US$300m.
MiddleSex - GAZPROM relationship
MiddleSex holdings - a small, London based trading group - is advertising the world biggest producer and Russia's biggest company GAZPROM on cheaper ways to raise finance. The appointment came as a result of the close contact between MiddleSex's and Interfin's top management and GAZPROM. Principally the role consist of :
Providing independent advice in relation to the selection and implementation of different fund raising strategies and regulatory requirements of international capital markets;
Liaison with advisors, once appointed, on behalf of GAZPROM as well as coordination of GAZPROM's fund raising and corporate activities;
Assisting in the design and implementation of special project finance schemes and structured long-term program of public and investor relations aimed at strengthening GAZPROM's position in the international capital markets.
In returns for its services MiddleSex receives fees, depending on the type of service provided, and determined by GAZPROM's board, plus the reimbursement of its expenses in connection with travel, presentation and other expenses.
If relation with GAZPROM maintained, and GAZPROM's current financial restructuring and capital raising plans are carried out, I think this is the one of the most important step for MiddleSex holding, and they are well positioned to benefit and generate significant returns.
To sum up then, taking a closer look at the Annual reports of the companies just confirming what I have researched through different types of magazines and newspapers, as well some official reports of the company. Through out the official statements it is crystal clear that company had a very big boost when Massoud Alikani has arrived and restructured the company almost completely, as well as brought some past experiences idea from the time he worked in Russia.
Then the company had another big growth in 1996 when the steel trading became the flagship operation and they started to work with OEMK.
1. Guardian newspapers;
2. Financial Times newspapers;
3. Newsweek magazine;
4. Economic Research (russian);
5. MiddleSex Oficial Financial Statements .